What Is the Premium Tax Credit for Health Insurance, and How Does It Work?
Key takeaways:
You may be eligible for a premium tax credit (PTC) if you enroll in a health insurance plan through the marketplace.
A premium tax credit — sometimes called a subsidy — can lower your monthly insurance costs or reduce your tax bill at the end of the year.
If you qualify for the premium tax credit, you should be aware of income and other reporting requirements to avoid surprises at tax time.
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The Affordable Care Act (ACA) paved the way for tax subsidies, such as the premium tax credit (PTC). This refundable credit helps individuals and families save money on health insurance.
Not everyone will qualify for this credit, though. Those eligible must enroll in ACA coverage through a state health insurance exchange or HealthCare.gov marketplace to claim the premium tax credit.
What is the premium tax credit?
The premium tax credit is a refundable credit that helps eligible individuals or families afford their monthly insurance payment, also called a “premium.” To determine if you qualify, you’ll need to complete an application for insurance coverage through a state health insurance exchange or HealthCare.gov marketplace. Your answers to questions about your household and estimated income will determine if you are eligible for financial assistance.
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See what other benefits you qualify for—from cashback cards to cheaper insurance.
If you qualify, the premium tax credit can reduce your tax bill or increase the size of your tax refund.
How does the premium tax credit work?
Generally, you have to wait until you file your tax return to secure any tax benefits for which you are eligible. That's not the case with the premium tax credit, though. Eligible individuals or families can receive premium tax credit benefits during the year.
The marketplace will send advance payments of the premium tax credit (APTC) to your health insurance company. This will reduce your out-of-pocket insurance costs every month by making your premium much lower than it would have been.
What factors affect how much premium tax credit you can claim?
The premium tax credit makes health insurance more accessible and affordable. However, not every individual will receive the same premium tax credit. The amount of your credit may also vary from year to year. Several factors influence your credit amount, including:
Estimated income
Household size
Place of residence
A higher premium tax credit can lead to more savings — as long as you keep up with income reporting requirements. When you apply for ACA marketplace coverage, you will have a chance to forecast your income. The information you report will determine the amount of your premium tax credit.
Don’t miss open enrollment: Most people enroll in or renew their Affordable Care Act (ACA) plans during the fall, but certain life events may qualify you for special enrollment.
Review your benefits: Learn about how to use your summary of benefits and coverage to find out what your plan will pay for and more.
Want to claim the premium tax credit? Learn how Form 1095-A works and how you can use it to claim the premium tax credit.
Who qualifies for the premium tax credit?
As stated earlier, you must have health insurance through the marketplace to qualify for the premium tax credit. A family member can also be enrolled. You can not claim the premium tax credit with plans purchased outside of the marketplace.
Here are some other qualifications that you must meet:
You are not listed as a dependent on another person’s tax return.
Your tax filing status is not “married filing separately.” Exceptions may apply for survivors of domestic abuse or spousal abandonment.
You do not have qualifying health coverage through Medicare or Medicaid.
You do not receive affordable health insurance coverage through a qualified workplace plan.
You meet the income requirements.
Even if you qualify to receive the premium tax credit, your credit amount may change due to swings in income. It’s important to keep up with income requirements and report increases in income. This will help you determine the amount of premium tax credit for which you are actually eligible.
Previously, under the ACA, household incomes had to be between 100% and 400% of the federal poverty level (based on household size). This was the income range to qualify for the premium tax credit. The lower the household income, the higher the premium tax credit.
For 2021 and 2022, the American Rescue Plan (ARP) expanded access to the premium tax credit. Families that exceeded the 400% federal-poverty-level cap did not have to pay more than 8.5% of their total household income toward the cost of a benchmark plan.
For 2025, your employer-sponsored health insurance is considered affordable if the required premium contribution is not more than 9.02% of your income for the lowest-cost, self-only coverage premium, down from 8.39% in 2024. If your income is up to 150% of the federal poverty level, you are not required to contribute anything toward your premiums. But if your income is 400% of the federal poverty level or above, the required contribution is 8.5% of household income for 2025.
When do you receive your tax credit?
There are two times that you can receive your premium tax credit:
At the end of the year when you file your taxes
During the year as an advanced premium tax credit
If you choose to delay the benefits of your premium tax credit, you can claim it as part of your tax return. When you file your tax return, you’ll receive the total amount of the credit for which you qualify. Since the premium tax credit is a refundable credit, you may be eligible for a tax refund at the end of the year.
What is the advance premium tax credit?
The advance premium tax credit is another way to receive the benefits of the credit. Instead of waiting to receive a tax credit at the end of the year, you can choose to receive advance payments of the premium tax credit (APTC) during the year. These can help you reduce the upfront cost of health insurance premiums.
The government will make payments to the insurance company every month on your behalf. This will lower your out-of-pocket costs for insurance premiums. However, you’ll be responsible for paying the remaining amount of the insurance bill that is not covered by the advance payments.
Will you still owe money at tax time even after you’ve claimed tax credits?
There are some items to consider if you receive advance payments of the premium tax credit. Your projected income will determine your credit amount. If your income changes during the year, this could pose problems at tax time.
Let’s say you pick up a side hustle as an Uber driver or freelance writer. If your income is inconsistent from month to month, you may earn more money than you projected that you would receive. You would have to repay a portion or all your premium tax credit at the end of the year.
It’s also important to report any life changes. They could impact the amount of premium tax credits for which you are eligible. Here are the life events that should be reported immediately:
Change of residence
Marriage or divorce
Birth or adoption
Death
Offer to receive workplace insurance coverage
Enrollment in Medicare or Medicaid
You (or a family member or designee, in the case of your death) should report any of these changes as soon as possible to avoid an unexpected tax bill. If you fail to act immediately, you may have to repay any excess premium tax credit that you received during the year.
Does the premium tax credit work with any type of insurance?
The premium tax credit is available to individuals who have ACA health insurance. You can buy it through the HealthCare.gov website or state marketplaces.
Coverage purchased outside of the marketplace does not qualify. If you have affordable health insurance through your job, you cannot claim the credit.
You also don’t qualify for the premium tax credit if you have the following insurance:
Premium-free Medicare Part A
Medicaid
Children’s Health Insurance Program (CHIP)
What tax forms do you need to claim a premium tax credit?
You will need Form 1095-A, Health Insurance Marketplace Statement and Form 8962, Premium Tax Credit (PTC) to claim the premium tax credit.
You should receive Form 1095-A, Health Insurance Marketplace Statement by Jan. 31. This form is usually sent in the mail by the health insurance marketplace. If you have trouble finding your 1095-A, you can sign in to your HealthCare.gov account.
Your 1095-A includes the following information:
Monthly premiums paid by you or your family members
Information about your insurance policy
Monthly advance payment of premium tax credits paid on your behalf
Total of premium tax credits used
Number of people in your household covered by a health insurance marketplace plan
Review Form 1095-A for accuracy. This form will help you reconcile premiums paid with premium tax credits used. If you received too much, you will have to pay back any excess premium subsidy you received.
Use Form 1095-A to complete Form 8962, Premium Tax Credit (PTC). You should submit this form with your tax return to claim the premium tax credit. You are also required to complete this form if you or a family member received APTC during the year. Download Form 8962 from the IRS website for the tax filing year for which you are claiming the premium tax credit.
The bottom line
If you qualify for the premium tax credit, make sure you understand how it works. An ACA subsidy such as the premium tax credit can help you save money on monthly insurance. It can also help you boost your tax refund or lower the amount you owe. You can claim the premium tax credit on your tax return or receive APTC during the year. Pay attention to reporting requirements to ensure you can maximize your benefits. You don’t want to have to pay back part or all of your premium tax credit because you failed to report any income or life changes on time.
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References
HealthCare.gov. (n.d.). Medicaid & CHIP: Canceling a marketplace plan when you get Medicaid or CHIP.
IRS. (2024). Eligibility for the premium tax credit.
IRS. (2024). Form 8962: Premium tax credit (PTC).
IRS. (2024). Premium tax credit: Claiming the credit and reconciling advance credit payments.
IRS. (2024). About form 1095-A, health insurance marketplace statement.
Raymond, C. L. (2024). 26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. Rev. Proc. 2024-35. IRS.
Raymond, C. L. (2023). 26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. Rev. Proc. 2023-29. IRS.
